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Economy

Colombia to finance rebuilding with taxes, Ecopetrol

by Newswires January 12, 2011

Colombia news - Juan Carlos Echeverry

The Colombian government doesn’t expect an increase on its debt issuance or a hike in its fiscal deficit as it seeks to bolster spending to tackle devastating floods that have lashed the country, Finance Minister Juan Carlos Echeverry said Wednesday.

Instead the government plans to use tax collection, budget spending and the partial sale of state oil company Ecopetrol SA (EC, ECOPETROL.BO) to finance its reconstruction efforts.

The government’s tax intake is set to increase after President Juan Manuel Santos decreed that a financial transactions tax will remain in place until 2014. Santos also lowered the threshold on a wealth tax, which is set to increase the government’s tax collection.

Combined with budget spending, the government aims to use the increased tax intake to create a COP6.3 trillion ($3.38 billion) “calamity fund” for spending between 2011-2014.

The government additionally will sell a stake in Ecopetrol. The government had previously secured approval to sell as much as 10% of the oil company, but Echeverry said Wednesday that the government could instead sell gradually between 5% and 6%. The government’s financing plan calls for between COP8 trillion and COP10 trillion to finance infrastructure spending in 2011-2014.

The process to privatize a stake in Ecopetrol is likely to proceed slowly, Echeverry said. This year the government could sell as little as 1%, the finance minister added.

The rains, which have left hundreds dead, are unlikely to have a negative impact on economic growth, Echeverry said. Public spending this year geared at dealing with rains could bolster economic activity, he added. The government expects economic growth of between 4% and 4.5% for all of 2010 and 2011.

(Darcy Crowe / Dow Jones Newswires)

economyEcopetrolrainy seasontaxes

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